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Job losses could fuel foreclosure problemMBA projects negative economic growth until mid-2009, another hit to housingBy Amy Hoak, MarketWatchLast update: 10:31 p.m. EDT Oct. 21, 2008Comments: 57SAN FRANCISCO (MarketWatch) -- If 2008 was a record year for mortgages entering foreclosure, 2009 could look even worse: While home-price declines have been driving foreclosure starts recently, mounting job losses could add another layer of stress on American homeowners, the chief economist of the Mortgage Bankers Association said on Tuesday.A recession appears to be underway, according to the MBA's annual economic forecast, which projects negative economic growth through the middle of next year. The MBA presented its forecast to reporters Tuesday at its annual convention, being held in San Francisco.

Unemployment also will likely accelerate, perhaps reaching 7.7% by the end of next year, making it tougher for some people to stay in their homes, said Jay Brinkmann, chief economist of the MBA. He doesn't expect a rapid recovery in the jobs market, either: Unemployment won't decline until late 2010, according to MBA projections.And while new-home production has decreased, the housing market will still continue to struggle with high inventories of for-sale properties. "Even though we see the new-home inventories falling, we see existing-home numbers increase," Brinkmann said.No surprise, then, that he also doesn't expect home building to ramp up again soon: New-home sales will be down by 36% this year, compared with last year. Next year, new-home sales will be down by 12% -- though perhaps reaching a bottom in 2009. Sales are expected to rise 25% in 2010.Meanwhile, existing-home sales will be down by 13% this year compared with 2007, but should increase 3% in 2009. According to MBA projections, existing-home sales could be up 6% in 2010.Median home prices for new and existing homes are expected to be down about 6% to 7% in 2008, and prices should decline 3% to 4% in 2009. They're expected to rise slightly in 2010.One number that might not change much over the next year -- rates on the 30-year fixed-rate mortgage. The MBA projects the mortgage to average 5.8% in the fourth quarter of 2008, 5.7% in the first through third quarters of next year, and 5.6% in the fourth quarter of 2009.But as favorable as mortgage rates may be, for many would-be homeowners that might not be enough. That's because people's chief reason for not making a home purchase may no longer be related to fear of home-price declines or stricter lending standards. A bigger reason could have to do with their job security."They buy based on whether they have a paycheck," Brinkmann said. Increased paychecks typically cause increased household formation, he said, adding that in times like these, would-be buyers typically live with family or roommates until they can make a purchase.Total residential mortgage production in 2009 is expected to be $1.67 trillion, down from $1.86 trillion in 2008 and $2.3 trillion in 2007, according to the MBA.The foreclosure problemPaychecks also determine if homeowners can pay their mortgage."We have been consistently setting records for new foreclosures and loans in foreclosure," Brinkmann said. The slowing economy could cause that trend to continue.California and Florida have been the two states heavily influencing the national foreclosure start numbers, and that has been due largely to overbuilding and home-price declines in some of their markets.But it's not yet clear how the recession will affect the economies of individual states, Brinkmann said. For example, job losses could be greater in the Midwest, where there's a shrinking number of manufacturing jobs, but it's uncertain how California's job market could behave, he said.The foreclosure issue has been a focus of this year's MBA convention."We expect to see more than 2 million foreclosures this year," said Steve Preston, secretary of the U.S. Department of Housing and Urban Development. Preston addressed the industry group in a speech on Tuesday morning. For perspective: "That's roughly a third of the five and half or six million homes that are likely to be sold this year in our country."Foreclosures are likely to continue to be a primary driver of supply of homes on market, he said, and they'll continue to influence home prices.Industry and government effortsGranted, these days people who are buying homes are getting into safer loans -- and that bodes well for the future."Today the U.S. government supports 90% of new mortgages in our country either through Fannie and Freddie or government insurance programs primarily like that of the FHA," Preston said. FHA-backed mortgages alone have gone from 2% of mortgage originations to almost a quarter of the market by recent counts, he said.FHA loans have helped those who might have gotten a subprime loan in the recent past. The agency provides government-backed insurance on the mortgages it issues and allows buyers to put down as little as 3%. The FHA was created in the Great Depression to help low- and moderate-income home buyers.A lot is being done to address the current tide of foreclosures as well.The industry's Hope Now Alliance -- a group of counselors, mortgage-market participants, and mortgage servicers -- reports helping nearly 2.3 million homeowners avoid foreclosure through modifications and workouts since its inception last year. The government has increased funding for housing counseling and its Hope for Homeowners program helps struggling homeowners refinance into FHA loans.But clearly, the issue isn't going away, and efforts need to be stepped up, Preston added."We receive consistent feedback from borrowers and counselors that servicers don't have the authority to help them or that loan-modification qualifications are so rigid that many people that can be helped are falling through the cracks," Preston said.Unless the industry is aggressive, "Congress may lose patience and impose stronger measures on those in the business of homeownership," he said. "Now is the time to continue to be bold... as it relates to people who are coming forward and raising their hand to say 'I have a problem, I can't pay my mortgage, I need help.'" End of StoryAmy Hoak is a MarketWatch reporter based in Chicago.

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